MNI: Fed's Rosengren Highlights Trade, Overheating Risks

--Watching Data for Signs of Spillover Effects on Growth, Inflation

By Jean Yung

     WASHINGTON (MNI) - Disruptive trade actions and overheating "could prove

problematic" for the U.S. economy despite a very positive outlook at present,

Federal Reserve Bank of Boston President Eric Rosengren warned Friday, offering

insight into his thinking on risks around tariffs and above-trend growth. 

     He is already "in favor of somewhat more tightening than the median FOMC

member," citing personal forecasts for the unemployment rate and inflation as

"somewhat stronger than the median" forecast among his FOMC colleagues, he said

in remarks prepared for the Greater Boston Chamber of Commerce.

     Spillover effects from tariffs could dampen growth and push inflation

higher, while running the economy too hot could lead to an "undesirable

'boom-bust' scenario," he said. 

     It would take a "significantly broader set of trade actions" than those so

far announced by the Trump administration to materially reduce the roughly $2.4

trillion in annual U.S. exports, but indirect effects are possible and may be

difficult to measure, Rosengren said. 

     For example, concerns about possible supply disruptions might cause firms

to source supplies from other countries, "and the new capacity in these other

countries could potentially mean less U.S. investment and employment," he said. 

     Tariffs could also push up consumer prices directly, while actions to avoid

possible tariffs can cause precautionary stockpiling, which can disrupt the flow

of orders and cause production bottlenecks, he said. 

     On the other hand, it's possible that unemployment will fall even more

rapidly in the short-term than he expects. If unemployment moves far below its

natural rate and stays there, history illustrates that "tended to generate

conditions that resulted in a recession," he said.

     He sees the jobless rate falling to 3.7% by the end of the year, one-tenth

below the median among FOMC members in March. 

     In light of these risks, Rosengren said he would be watching incoming data

carefully. 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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